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Everyone Listens to Radio Station WII FM

By: GuruFocus
Posted: 6/12/2013 6:29:00 PM
Referenced Stocks: AAPL;QQQ;SPY

Everyone listens to radio station WIIFM

What do the call letters WIIFM stand for? What's in it for me? Commission salespeople usually do what is in their own best interests.


Never forget that fact.



I usually write about stocks or options, but many of my friends ask me for all-around financial advice. When I worked for Merrill Lynch they had a computer-listed bond inventory.

The first bonds that were sold to customers were always the worst.
How could that be? Unloading bad bonds paid the highest commission to the selling broker. Bond dealers pay handsomely to get trashy inventory off their own books.

A new bit of jargon was created. Instead of wonderful YTM (yield to maturity), poorly rated paper had a high YTB (yield to broker). Large brokerage firms know that good bonds "sell themselves." Underwriting fees on issues like Apple ( AAPL )'s recent $15 billion offering were huge. With over-subscribed demand, sales commissions to brokers were tiny.

In just a few paragraphs I'm going to share a secret with you that will help you sell your house faster, and for more money than you might otherwise obtain.

The sale of your own home can be one of the most important transactions you will make in your lifetime. Unless you are a seasoned real estate person the DIY ( D o I t Y ourself) method rarely works out well. Without the multi-listing feature and motivated agents it is tough to stage, show and market your home.

Setting and negotiating a good price can be even more problematic as you will be emotionally involved to an unhealthy extent. Typically, homeowners pick a listing agent (a real estate brokerage firm) to help price your property, advertise and list it.

Normal residential commissions run 6% of the final sales price. Half of that goes to the listing agent's firm while the other 50% goes to the agency that actually finds the buyer. That creates both a problem and an opportunity for you. What is the downside of the system? Real estate agents will tell you whatever you want to hear in order to get the listing.



Every real estate company wants to list your house. That is the easy part. Selling it is much tougher. To capture listings they assure you they can attract a high offer, even if your asking price is unrealistic. Agents know they may lose your business if they don't. Pricing a property too high, though, usually results in no offers.

After a while the listing agent will call to suggest lowering the price "due to poor market conditions." You will have wasted precious time and the listing's freshness factor when that occurs.

What could motivate a selling agent to specifically get a buyer for your home? Pay a higher than normal commission to the person who closes the sale. Write your RE agreement to specify a 3.5% or even 4% payment rather than 3%. One-half percent on 3% is a 16.67% bonus. A 1% additional payment is a 33.3% extra incentive.

Just as it did with those low-quality bonds, houses that pay salespeople larger commissions get shown the most and sold quickest. They will be aggressively recommended over all other houses in the same price range. This counter-intuitive strategy works brilliantly.

Having every realtor in town working hard to sell your particular property works like magic. This technique is generally more effective than cutting the asking price. Paying a greater commission often means collecting more net money than waiting, hoping and rotating through multiple price reductions.

Remember, only increase the percentage payment to the agent who actually brings a buyer to the table, never to the listing agency.

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